California Finance Director Details Budget: Fiscal Outlook Improves, Revenue Shortfall Avoided

He pointed out that while a shortfall is not currently predicted this year, increases in baseline ongoing programs have been observed, so California's out year positions will need to be monitored.

"That's something that we are going to continue to assess for the May Revision and to make changes…as appropriate," he said.

The Governor's proposed budget for the upcoming fiscal year is approximately $322.3 billion in total spending, with $228.9 billion coming from the General Fund, Stephenshaw explained. Additionally, revenue is coming in above forecast through November, largely driven by the personal income tax.

Concerning California's reserves, the state is withdrawing $7.1 billion from its Rainy Day Fund for the upcoming budget year as part of a two-year plan that was put into place by the 2024 budget agreement, Stephenshaw said.

The Finance Director noted that the Governor has stressed the importance of contributing to the Rainy Day Fund during revenue upswings and so the office will be proposing two key changes to current requirements: increasing the mandatory deposit amount from 10% to 20% of General Fund revenues, and exempting deposits into the Budget Stabilization Account (BSA) from the state appropriations limit.

The changes, he said, "…really will help us be better positioned to manage the volatility going forward and to mitigate instances such as we've seen the last couple of years."

Other proposals in the Governor's budget highlighted by Stephenshaw include:

Questions and Answers

California Finance Director Joe Stephenshaw and CalChamber President and Jennifer Barerra discuss the 2025 California budget on January 17, 2025.

After his presentation, Stephenshaw sat down with CalChamber President and CEO Jennifer Barrera for a fireside chat and to answer questions from webinar attendees.

The first question posed to Stephenshaw was regarding the difference between the Department of Finance (DOF) and the Legislative Analyst's Office (LAO) 2025 fiscal forecasts. Stephenshaw answered that their fiscal projections differ only by about 1.4%, well within the margin of error. The LAO is more "pessimistic" than the DOF, but they're "really not that far apart" in their projections, he said.

Stephenshaw was also asked what issues proposed by the new presidential administration the DOF was monitoring. He answered that sustained inflation is a key concern, and policies surrounding tariffs and immigration risk affecting inflation levels. Tariffs in particular would affect ports and logistics, he said.

When asked about the recent wildfire disaster in Southern California, Stephenshaw said that due to the wildfires California has faced in the past, California is prepared from a fiscal forecasting perspective. The DOF is assessing the needs from the state and it's the No. 1 priority of the Governor's administration.

"Everybody is focused on helping that community recover and helping rebuild," he said.

Barrera also asked about the research and development (R&D) tax credit, which was suspended as part of the solutions to address the budget deficit in the last cycle. Stephenshaw replied that the R&D and Film and Television tax credits are being evaluating as part of the May Budget Revise.